Reduced Liability For “Rollback Taxes”

By Brian Fisher -

The 2019 Texas legislative session enacted several significant changes to Texas ad valorem (or property) tax law. Among the more significant changes affecting developers of real property is House Bill 1743. Texas law permits land to be taxed at an “agricultural” value significantly lower than the land’s market value provided the land satisfies the requirements for “qualified open-space land”.^[1] When the use of the land changes, the land will no longer be taxed at the “agricultural” value and the then owner of the land will owe “rollback taxes” equal in amount to the difference between the taxes which would have been owed had the land been taxed at its market value and the taxes actually paid.^[2]

Prior to the enactment of House Bill 1743, “rollback taxes” were due for each of the 5 years immediately prior to the change in use for which the land was taxed at its “agricultural value” together with 7% interest ^[3] from the date such taxes would have been due. House Bill 1743 reduced the number of years “rollback taxes” can be assessed to 3 years and reduced the interest rate charged on such taxes to 5%.

This reduced liability for “rollback taxes” should serve to increase development, freeing up funds for other development costs and, perhaps, make the allocation of liability for “rollback taxes” less of a contentious issue between sellers and purchasers. House Bill 1743 became effective on September 1, 2019.

[1] Texas Tax Code §23.51(a)
[2] Texas Tax Code §23.55(a)
[3] Texas Tax Code §23.76(a)